I am a MA/MBA candidate at the Lauder Institute and the Wharton School of Business. I focus on Russian politics, economics, and demography but also write more generally about Eastern Europe. Please note that all opinions expressed here are mine and mine alone and that I do not speak in an official capacity for Lauder, Wharton, Forbes or any other organization.
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Is Russian Oil Production Plummeting?

According to a recent Bloomberg story Saudi Arabia displaced Russia as the world’s largest oil producer, producing just about three thousand barrels a day more in March of 2012:

Saudi Arabia boosted crude production close to a 31-year high in March, overtaking Russia as the world’s largest oil producer for the first time in six years, according to the Joint Organization Data Initiative (JODI).

Saudi crude exports rose 3 percent in March, reaching the highest level in five years as Iran cut shipments, according to government statistics posted today on the initiative’s website.

Saudi Arabia, OPEC’s largest producer, increased daily output to 9.923 million barrels in March, up 0.7 percent to the second-highest level since at least 1980, according to the initiative. That topped output from Russia, which pumped 9.920 million barrels a day, for the first time since February 2006, according to the data.

When you think about the total production volumes of both countries you realize that a few thousand barrels is an incomprehensibly small amount: given the margin for error inherent in measuring such titanic amounts of oil it’s certainly possible that Russia actually produced more than Saudi Arabia in March even according to the numbers released by JODI.

But what was really interesting was not that the Saudis successfully boosted production, it’s long been known that they have significant excess capacity and can, if needed, rapidly put more oil on the market, but that Russian oil production through the first few months of 2012 was apparently sharply lower than it was at the end of 2011. This would be a truly shocking development, as the Russians have reported that their production has been holding steady near a post-Soviet high.

I accessed JODI’s publicly available database and quickly threw together a graph of Russia’s monthly oil production figures for the past two years.

According to JODI, there was a roughly 5% decline in Russian oil production between December 2011 and January 2012, a decline that is all the more stark because it came after an extended streak of increases. A 5% monthly decline in overall oil production is a really big deal, the equivalent of the total production of a country like Argentina or Ecuador disappearing overnight. As you can very easily see from the chart, the magnitude of the December-January decline was substantially greater than any other monthly change in over the past two years.

I follow Russia and the Russian energy sector pretty closely, and I don’t remember seeing, hearing, or reading anything that would come anywhere remotely close to explaining such a huge drop in production. Indeed when I first looked at this chart I was completely shocked. What could possibly explain such a dramatic decline? Was there some large-scale terrorist attack on Russian oil infrastructure that went totally unreported? Did parts of Siberia just vanish into thin air? Did Greenpeace convince the Kremlin that it should be much more sensitive to the needs of our earth mother?

I would argue that a half million barrels a day of production can’t simply disappear, and that there has to be something seriously wrong with the data: either previous Russian production figures were artificially high, or the most recent production figures released by JODI are artificially low. It’s worth noting that the JODI folks aren’t some weird tinfoil hat wearers or conspiracy theorists, they are by all accounts a relatively boring and standard part of the oil world. Moreover, the gap between their data and that released by the Russians themselves is a very recent phenomenon. Let’s take a look at a few months from the late summer and fall of 2011 and the winter of 2012 (Energy ministry figures from Reuters stories here, here, here, here, here, and here ).

The two figures match almost exactly until there is a dramatic and sustained divergence starting in January. If JODI has some sort of an anti-Russian grudge, it’s a very recently acquired one.

What does this tell us? Well, either Russia experienced a significant production loss that nobody noticed or reported or there is something dramatically wrong with the data supplied by JODI. The later seems to be much more likely, but neither of these are good options. Either we’re actually a lot more ignorant about Russia than anyone would have guessed or one of the main organizations in charge of gathering, storing, and disseminating information used to price one of the world’s most crucial natural resources is so badly flawed as to be almost useless.

As someone who has a keen interest in comparative demographics and economics, I’m consistently amazed by the lack of good data sources: even using a wide variety of internet search tools, finding basic information is a lot harder and more time consuming than I ever would have guessed, particularly if you’re trying to find anything from the past year or two. It would be very discouraging, and more than a little scary, if one of the few trusted data sources such as JODI turned out to have such serious flaws in its data. It would be even scarier if the oil market was even more opaque and confusing than was assumed to be the case.

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